Resigned to Resignation?

By William Davis

So, as any money junkie will tell you, the latest “Economic Symposium” sponsored by the Federal Reserve Bank of Kansas City took place last week. Better known these days as the “Jackson Hole Global Boondoggle and Data Fish Fry,” the little summer retreat for dismal scientists allegedly focused on important economic issues that face U.S. and world economies. This year’s lineup of what might pass for global policy makers included an assembly of central bankers, a slug of self-described academic luminaries, and a single soon-to-be-ex-Federal Reserve Chairwoman.

The annual symposium has been sponsored by the Kansas City Fed since 1978

True enough, Fed Chief Janet Yellen – whose chair ends in February – used the high-profile hiker setting to argue that the morass of U.S. post-crisis regulation, not least of which the unmentionable Dodd-Frank Act, was nothing short of awesome. While not specifically mentioning the Act-whose-name-must-not-be-spoken, the head banker intimated in her 19-page presentation that many of the changes the legislation initiated had saved the financial system.

The conference moved to Jackson Hole, Wyoming in 1981 to gain the attendance of Paul Volcker, then chairman of the Fed and an avid fly-fisherman

Of course, by broadly defending the quagmire of reforms that Republicans and bankers — and her boss — love to hate, the 71-year-old Mrs. Yellen was probably making her final speech as Fed chair to the Jackson Hole forum. You might remember that during the election campaign, now-President Trump repeatedly criticized the slog of regulations enacted since 2010, arguing that the rules hurt the economy by discouraging banks from making loans to credit-worthy real estate developers and others

Symposium organizers passed on Denver, a Branch of the Kansas City Fed, because they felt Colorado was too warm in August to fish for trout

While Mr. Trump has yet to Twitter his Fed Chairwoman on monetary policy, it’s well known the two have very different views on regulation. In fact, the Fed chief agrees with virtually nothing the administration is looking for regarding financial deregulation.

Reportedly, important bankers still go fly-fishing around the time of the Jackson Hole confab, though Mr. Volcker, now 89, no longer hangs out. Mrs. Yellen probably won’t be dropping a line there either.

What the equity markets have been doing…

Boosted with what turned out to be a pretty nifty rally last Tuesday, the big equity indexes managed to end the two-week stretch close to where they started…real close, in fact, for both the S&P 500 and the NASDAQ. For no obvious reason, other than the Eclipse, perhaps, trading activity slowed to the lowest level of the year. On the whole, the energy and real estate spaces did well, while consumer staples were weak.

With second-quarter earnings reporting season essentially finished, economic data and political news drove what little sentiment there was. On the numbers front, home sales, both new and existing, were reported to have declined in July, while durable goods orders surprised on the upside. On the swamp front, no one reacted well to threats of a government shutdown or withdrawal from NAFTA.

INDEX

Friday’s Close

One-Week Point Change

Year-to-Date Change

DJIA

21,813.67

-(44.65)

+1038%

S&P 500

2,443.05

+1.73

+9.12%

NASDAQ

6,265.64

+9.08

+16.39%

What the fixed income markets have been doing…

Pick a bond market…any bond market: No change for the period. Between the mixed bag of economic data and certain technical factors, maybe the Eclipse, fixed income trading volumes and price movements were light to say the least. There’s also good reason to think that bond traders, known historically to enjoy their holidays, might be trying to reduce their inventories ahead of the Labor Day weekend.

FIXED INCOME

Period

YTD

12 Months

Yield

U.S. Treasuries

NC

2.9%

-(1.1)%

2.2%

U.S. Investment Grade

NC

5.1%

1.9%

3.1%

U.S. High Yield

-(0.1)%

5.7%

8.4%

5.7%

U.S. Municipals

NC

5.1%

0.8%

2.1%

Non-U.S. Developed

-(0.1)%

10.2%

-(2.0)%

0.7%

What the numbers are saying…

15%

The percent that four mutual-fund companies have marked down their investments in Uber. The first of such price cuts suggest these investors are souring on the ride-hailing giant following a scandal-ridden year.

What the pundits have been saying…

“We are living in a low-return, high risk world and an environment where most investors are happy to bear risk.”

— Jay Steven Wintrob, CEO, Oaktree Capital Group

What people have been saying…

“The fact that there is a lot of complacency in all markets, not just the equity markets, leads me…to the view that this complacency that we’re seeing in the markets can lead to a decline in equity values.”

— James Tisch, president and CEO of Loews Corporation

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